Download - IB Whirlpool
Whirlpool:
The Whirlpool Corporation is an American multinational manufacturer of major home appliances headquartered in Benton Charter Township, Michigan, United States. The company is listed in Fortune 500. The company markets a horde of brands across the globe, some of which are:
Whirlpool
Maytag
KitchenAid
Jenn-Air
Amana
Gladiator
Garage Works
Inglis
Estate
Brastemp
Bauknecht
Consul
Founded in 1911, Whirlpool is celebrating its 100th Anniversary this year.
The company’s growth strategy has been to introduce innovative new products, strengthen customer loyalty for its brands, continue to expand its global footprint, add or enhance distribution channels and, where appropriate, make strategic acquisitions which enhance the company's innovative global product offering.
Successful execution of this strategy required Whirlpool to sustain corporate brand recognition while simultaneously expanding brand value and identity for multiple product lines positioned for distinct market segments. Centralized creation, management, and distribution of brand assets is critical to this endeavor, serving as a pillar for brand management programs, marketing campaigns, and co-promotions with trade customers.
With endeavors’ spanning across all these segments, this corporation has transformed itself from a regional manufacturing and trade-focused business into a global, consumer-driven enterprise over the past a decade and a half.
Whirlpool- Journey Across The Globe
Louis and Emory Upton founded the Upton Machine Company on November 11, 1911. With the financial aid of Lowell Bassford, they began to produce electric, motor-driven wringer washers. Soon after its founding, Lou Upton's younger brother Fred joined the company and was an integral part of the business.
1916 was when Sears, Roebuck & Co. began selling Upton manufactured machines under the "Allen" brand.
In 1929, Upton merged with Nineteen Hundred Washer Company of Binghamton, New York, taking the name “Nineteen Hundred Corporation”.
In 1949, First top-loading automatic washer was sold, manufactured for sale under Sears' brand. Consequently in 1950, it was renamed as Whirlpool Corporation and sold its first top loading automatic washer under this brand name. In 1955, Whirlpool Acquired the Seeger Refrigerator Company and RCA's air conditioner and cooking range lines including ownership of RCA's Estate brand name. The Company changed its name to Whirlpool-Seeger Corporation and began using the RCA-Whirlpool brand name until the mid-1960s. It also acquired appliance division from International Harvester Company. The RCA Whirlpool Miracle Kitchen was introduced with an estimated 15 million television viewers. The company changed its corporate name back to Whirlpool Corporation in 1957.
Whirlpool Corporation touched the $ 2 billion mark of annual revenue in 1978. In 1986, it acquired KitchenAid, a division of the Hobart Corporation. In 1987, they began selling compact washers in India and acquired majority interest in Inglis of Canada thereby marking its entry into India and Canada. In 1988, it began a joint venture with Philips called Whirlpool International with Whirlpool owning 53% of the company. The joint venture was formerly called the Philips' major appliance subsidiary. In 1989, it acquired the Roper brand and Bauknecht of Germany. The same year they surpassed $6 billion in annual revenue. In 1991, Whirlpool became full owner of Whirlpool International by buying Philips' 47% stake in it. In 1997, it acquired majority stake on Embraco, a Brazilian world-leading maker of compressors for refrigeration and entered Brazil. Within 3 years, it also acquired Brazilian appliance maker Multibrás, owner of the brands Brastemp and Consul, including its stake on Embraco. In 2001, Inglis Ltd. changed its name to Whirlpool Canada. Whirlpool continues to market Inglis appliances to this day. The same year it Surpassed $10 billion in annual revenues. In 2006, it acquired the Maytag, including the Maytag, Jenn-Air, Amana, Jade, Magic Chef, Admiral, Hoover, and Dixie-Narco brands. Thereby, clocking $18 billion in annual
revenues. It Sold Hoover to Techtronic Industries, TTI Floorcare and Jade Appliances to Middleby Corporation. The subsequent year it also closed plants in Newton, Iowa; Searcy, Arkansas; and Herrin, Illinois. This resulted in the sudden loss of 4500 jobs in the affected communities. However the revenues were still up and it surpassed the $19 billion mark in its annual revenues.
The following year saw Location closings in La Vergne, Tenn; Reynosa, Mexico; and Oxford, Miss. Whirlpool acquired WC Woods from Bankruptcy and to keep Ottawa, OH plant open; Whirlpool received $19.3 million in U.S. Department of Energy funding as part of its Smart Grid Investment Grant program. And in 2011, Whirlpool celebrated its 100th Anniversary and unveiled its 100th Anniversary logo as well as an updated corporate logo. The celebrations took place in Benton Harbor, Michigan on 11/11/11. Marked by the take over of former KarstadtQuelle brand Privileg from Otto Group.
Whirlpool in India
Whirlpool initiated its international expansion in 1958 by entering Brazil. However, it emerged as truly global leader in the1980's. This encouraging trend brought the company to India in the late 1980s. It forayed into the market under a joint venture with TVS group and established the first Whirlpool manufacturing facility in Pondicherry.
Soon Whirlpool acquired Kelvinator India Limited in 1995 and marked an entry into Indian refrigerator market as well. The same year also saw acquisition of major share in TVS joint venture and later in 1996, Kelvinator and TVS acquisitions were merged to create Indian home appliance leader of the future, Whirlpool India. This expanded the company's portfolio in the Indian subcontinent to washing machines, refrigerator, microwave ovens and air conditioners.
Today, Whirlpool is the most recognized brand in home appliances in India and holds a market share of over 25%. The company owns three state-of-the-art manufacturing facilities at Faridabad, Pondicherry and Pune. Each of these manufacturing set-ups features an infrastructure that is witness of Whirlpool's commitment to consumer interests and advanced technology.
In the year ending in March '09, the annual turnover of the company for its Indian enterprise was Rs. 1,719 Crores.
The company's brand and image speaks of its commitment to the homemaker from every aspect of its functioning. It has derived its functioning principles out of an undaunted partnership with the homemakers and thus a slogan of “You and whirlpool, the world's best homemaker” dots its promotional campaigns. The products are engineered to suit the requirements of ‘smart, confident and in-control' homemaker who knows what she wants. The product range is designed in a way that it employs unique technology and offers consumer relevant solutions.
Core Competencies of Whirlpool
Innovation: Unique and compelling solutions valued by their customers and aligned to their brands create competitive advantage and differentiated shareholder value.
Operational Excellence (OPEX): A methodology for solving problems & continuous improvement of products & processes through pursuit, acquisition, and utilization of knowledge using critical thought and planned experimentation helps them achieve operational excellence.
Customer Excellence: Excelling the customer expectation from the company, its brands, products and services are a three-step process. The three steps are: Know a customer, Be a customer, Serve a customer.
Knowing a customer helps know who our customers are, how to treat them, how we add value, and what the drivers of brand loyalty are. This information is gathered from the customer's data base history. This way we are better able to customize products for them and recommend the right product to solve problems. Being a customer is important to share customer knowledge and insights, drive actions based on customer insights, be passionate about our brands and customer loyalty and provide a positive voice for our brands. We show empathy for customers and seek to resolve their problems by creating consistent customer touch-points, with our endeavor always being to provide unique solutions for the customer.
SWOT Analysis of Whirlpool Corporation:
Strengths Weaknesses
Strong Brand Image
Robust revenue growth in Latin America
Increasing Cash Flow from Operation
High R&D- innovation- core competency.
Market share leadership
Consumer Oriented Products
High productivity
Development of manufacturing facilities of Whirlpool Asia as important export bases for other markets across the world.
Emergence of Whirlpool China as an important source for Whirlpool’s global procurement.
Development of Global platform strategy
Setting up regional manufacturing units to satisfy local consumer needs.
First company to introduce top loading automatic washer.
Economies of scale in manufacturing and distribution.
Experts in driving channel sales.
Good HR policies, work culture and values in the organization
Low Margin
Bad communication
Poor After Sale Service
Declining private label sales to Sears
High operating costs.
Poor leadership
Weak performance in Asian markets.
It tied up with Sears, the largest retailer of white goods to produce goods for them, only to be sold under Sears’ private brand label Kenmore.
Consumers generally did not associate a brand name of the parent company if the two weren’t the same.
Whirlpool failed to capitalize on its Dominant Consumer Franchise initiative which added special features to existing products. It failed due to cost & service issues.
Opportunities Threats
Acquisition of Maytag
Divestments
Growing Asian Markets
Increasing demand in Asian Markets esp. China.
Replacement demand in a stagnant market that can be catered to by innovation, Whirlpool’s Forte.
In the 1950’s, Whirpool merged with Seeger refrigeration company and bought RCA’s air conditioner & cooking range business. This enabled Whirlpool to compete better with GE.
By 1980’s, Whirlpool became the second largest white goods maker in the US after acquiring Kitchen Aid.
In 1991, Whirlpool acquired Philips’ European appliance business to become Worlds second largest white goods manufacturer.
Increasing Raw Material Cost
Intense Competition from Korean Counterparts, Samsung and LG
EU Directives- additional costs.
Stiff competition from local manufacturers in China
Intense Price competition
Reducing Demand of Consumer durables in the wake of Economic slump.
Exorbitantly high interest rates in US and Europe- adverse affect on sales.
Threat of cheap goods from other countries especially, Japan.
Patents on innovation are short lived.
Other companies looking to acquire Whirpool for consolidating the industry.
Falling margins with increasing competition.
Longer lifespan of products slowing “replacement demand”.
Strengths:
Strong Brand Image: The most significant strength of Whirlpool is its brand equity. The
company boasts of a portfolio of strong brands which have helped it enhance its unit
sales in diverse markets. Whirlpool’s strong brand equity has proved to be a successful
platform to launch new products in the market place through brand extensions, which
have helped it lower its advertisement expenses. Furthermore, on the employee front
strong brand equity has helped the company hire and retain some of the best talent in
the segment
Robust Revenue Growth in Latin America: Whirlpool recorded strong revenue growth
in Latin America. Revenue from Latin America increased from $1,350 million in 2003 to
$1,962 in 2005, a CAGR of 21%. This high revenue growth in Latin America offset lower
revenue growth in Europe and North America.
Increasing Cash Flow From Operations: Whirlpool has recorded a strong increase in
cash flow from operations in recent years. Cash from operations increased from $744
million in 2003 to $881 in 2005, a CAGR of 9%. Increasing cash flow from operations
allows the company to enhance revenue growth through organic and inorganic
initiatives.
Weaknesses:
Low Margins: The Company’s profit margins have been trailing the industry average
in recent years. In the five year period 2001 – 2005, the company’s operating
margins was 5.5%, compared with the industry average of 6.9%. Similarly the
company’s net profit margins, for the period 2001 – 2005 stood at 2.6%, as
compared to an industry average of 4%. Whirlpool’s lower than industry average
operating margins indicate as inefficient cost structure; the relatively low net profit
margin, meanwhile, suggests scope of improving capital structure.
Declining private label sales to Sears: Whirlpool’s private label sales to Sears are
declining. Sears markets its refrigerators under its own brand, Kenmore. Whirlpool
has been the largest supplier of refrigerators to Sears. However, Sears is shifting to
other vendors such as LG Electronics and Electrolux. Whirlpool’s supplies to Sears
have declined in recent years. A decline in private label sales to Sears would
adversely affect revenue growth of the company.
Opportunities:
Acquisition of Maytag: Whirlpool acquired rival home appliance company,
Maytag in August 2005. With the acquisition of Maytag, the company has access
to Maytag’s products and distribution network in the US home appliance
market. By integrating the manufacturing functions, the company hopes to save
nearly $400 million annually. The acquisition of strong brand name such as
Maytag would strengthen the company’s market position and result in
economies of scale as well as an enhanced market share and position.
Divestments: Whirlpool announced the sale of several businesses in May 2006.
The company has put Hoover, Dixie-Narco vending systems, Amana commercial
microwave and Jade commercial products appliance up for sale as these
businesses were not fit into its core business of selling laundry, refrigeration,
and kitchen equipments. The sale of these businesses would fetch a minimum of
$75 million. More importantly, it would allow the company’s management and
to focus on its core business.
Growing Asian Markets: Demand for home appliances is growing in Asia. The
strong economic performance of most of the Asian countries is resulting in
higher personal incomes, boosting demand for electronic appliances. The
company already earns nearly 3% of the total revenue from Asia. Growing
demand for home appliances in Asia will allow the company to improve its
revenue growth and diversify revenue away from mature markets in west.
Threats:
Increasing Raw Material Cost: Increasing raw material costs would raise
operational costs for whirlpool. The climbing base metal prices and high oil
prices could drive the costs of the company higher. In the fiscal year 2006,
the base metal price and higher oil costs added $150 million to the
company’s operation costs. Increasing operating cost would negatively affect
the operating profits of the company.
Intense Competition: The Company is facing stiff competition from home
appliances makers from Asia and other continents. Companies like LG
Electronics, Samsung and Haier are gaining market share in the US through
their low cost and high quality product. In addition, Arcelik, a Turkey based
appliance company announced its plans to enter the US market in 2006. The
entry of new players, on top of existing competition, would further intensify
the competition in the US appliance market and drive prices down. This
would put pressure on the company’s profitability.
New EU Directives: The Waste Electrical and Electronic Equipment (WEEE)
Directive of European Union (EU) makes producers of electrical and
electronic goods financially responsible for the specified collection,
recycling, treatment and disposal of past and future covered products.
Although some countries are yet to implement this directive, companies
operating in this market became responsible for implementing their
responsibilities under the WEEE in August 2005. EU member’s states, which
are yet to implement WEEE directives, are likely to implement in 200.
Whirlpool could incur sizeable costs liabilities under the new legislation.
Financial Analysis (2004-2006):
Summarized below are the key financial ratios for Whirlpool. By analyzing the financial ratio we
will be able to conclude whether an equity investor and a debt investor should invest in the
company. Also we will have to analyze if a portfolio manager will like to own the debt of
Whirlpool based on the financial ratios calculated.
For any investor the most important to look for is the profitability ratios and various margins.
We have first calculated these ratios which are mentioned below:
Profitability Ratios 2006 2005 2004 Comment
Return on Assets 4.90% 6.40% 6.20%There is a constant decline in the return on assets over the period of three years.
Return on Capital 12.60% 17.20% 16.50%There is a constant decline in the return on capital over the period of three years.
Return on Equity 19.30% 25.20% 27.90%There is a constant decline in the return on equity over the period of three years.
Margin Analysis
Gross Margin 14.70% 15.30% 16.20%
Gross margin can be seen under lot of pressure, due to increased cost of raw material. With increased metal and oil price, the gross margin is expected to decline further.
SG&A Margin 9.70% 9.40% 10.30% Whirlpool has been able to reduce its SG&A margin in 2005 when compared to 2004, however the same have increased again in 2006. One of the most important reasons for reduction of SG & A in 2005 is due to the acquisition of Maytag in
August 2005.
EBITDA Margin 7.90% 9.00% 9.20%
With the reduction in gross margin there has been a reduction in EBITDA margins as well.
EBITA Margin 5.00% 5.90% 5.90%
EBITA margin have remain constant in 2005 and 2004. However, there is some decline in 2006, due to lower gross margins.
EBIT Margin 4.90% 5.90% 5.80%
With the reduction in gross margin there has been a reduction in EBIT margins as well.
Net Income Margin 2.40% 2.90% 3.10%
Reduction in gross margin and increased operating expenses has contributed towards reduction in net income margin over the period.
From the above ratios we can see that there have been declines in all the profitability ratios and
the company expects further decline due to increased cost of metal and oil. The cost of raw
material is on a rising trend and will increase further which will keep the margin under huge
pressure.
Let us now analyze various ratios of the company from a debt investment point of view.
Asset TurnoverTotal Asset Turnover 1.6x 1.7x 1.7xFixed Asset Turnover 6.4x 5.6x 5.2xAccounts Receivable Turnover 7.6x 7.0x 6.7xInventory Turnover 7.8x 7.4x 7.3x
Short Term LiquidityCurrent Ratio 1.1x 1.1x 1.1xQuick Ratio 0.5x 0.6x 0.6xAverage Days Sales Outstanding 48.0 52.4 54.6Average Days Inventory Outstanding 46.6 49.6 50.2
Long Term SolvencyTotal Debt / Equity 71.20% 71.1% 87.9%Total Debt / Capital 41.20% 40.30% 45.70%Long Term Debt / Equity 54.80% 42.70% 72.20%Total Liabilities / Total Assets 76.30% 79.00% 80.40%EBIT / Interest Expense 4.3x 6.5x 6.0xEBITDA / Interest Expense 7.1x 9.9x 9.5x(EBITDA - Capex) / Interest Expense 4.2x 6.1x 5.5x
Total Debt / EBITDA 1.6x 1.0x 1.2xNet Debt / EBITDA 1.5x 0.6x 1.0x
Growth Over Prior YearTotal Revenue 26.30% 8.30% 8.60%Gross Profits 21.20% 2.60% -22.30%EBITDA 10.60% 6.00% -3.30%
From the above ratio analysis we can see that there is a considerable decline in the EBIT /
Interest Expense ratio, which measures the interest payment capacity of the company. Also
there is a decline in EBITDA / Interest Expense ration, which measures how much of cash
operating income is available for payment of interest.
Current Scenario:
2010-2011:
Whirlpool has reported a fall of 20.6% (YoY) in profits for the quarter ended June 2011. During the period, net profit of the company declined to Rs 51 crore against Rs 64.2 crore in corresponding quarter last fiscal.
Net sales too went down 8% to Rs 790 crore in April-June quarter of 2011 versus Rs 857 crore in the year ago period.
It announced yet another plans to cut 10 percent of its North American and European workforce by next year, resulting in the loss of 5,000 jobs as a part of their cost and capacity reduction initiative.
During the third quarter, ended Sept. 30, net sales rose 2.2 percent to $4.6 billion, driven largely by favorable currency fluctuations. Third-quarter operating profit fell nearly 42 percent, to $136 million, as weaker global demand and higher raw material and oil-related costs offset the benefits of ongoing productivity, cost reduction initiatives and previously announced price increases, the company said.
In North America, sales slipped 2 percent to $2.4 billion as unit shipments decreased 3 percent, compared with a 4 percent decline in shipments industry wide during the period. North American operating profit fell 45.6 percent as a series of price hikes and an improved product mix were offset by lower unit sales, higher material costs and reduced production.
Looking ahead, Whirlpool is projecting a 3 percent to 5 percent decline in full-year U.S. industry shipments in 2011.
In 2009-2010:
Whirlpool announced closure of Evansville, Indiana factories moving its manufacturing facilities to Mexico. The mid-2010 plant closure will eliminate 1,100 full-time jobs.
Whirlpool, like most manufacturers, has seen its sales slump over the past year as a global economic recession and housing market slump hurt demand for home appliances. Whirlpool's latest revenue numbers show sales in the second quarter fell 18% to $4.17 billion from the second quarter of 2008.
Shares rose $1.57, or 2.4%, on the announcement to close at $66.11. The stock, though down 19% from year-ago levels, has rallied nearly 60% since the start of the year.
Whirlpool has been busy downsizing its operations for several years. It reduced 5,000 jobs, or 7% of its workforce, by the end of 2009. The cuts included 500 salaried positions in North America and another 1,900 jobs abroad, mostly in Europe.
PEST Analysis:
Political:
39% increase in FDI. 100% FDI for SME. Gov. inappropriate behavior in case of FDI in retail No incentives to manufacturing sector since 2010.
Porter’s Five Forces Model:
Rivalry among existing firms:
Intensity: Moderate
Market still at nascent stage in some countries and for some selected product ranges but high growth rate.
Big Muscle players are there but its market share is low as compared to other manufacturing sectors.
Threat to new substitutes:
Intensity: Low
Product innovation is the only way of substitution. Very low R & D in the sector keeping the intensity of threat to low level.
Threat of new entrants:
Intensity: Moderate
Supply chain distribution and logistics is not so good in the sectors Product differentiation in this case, is again very low. IIP of India is contracting making the manufacturing sector unattractive. Majority new entrants are foreign players.
Bargaining power of suppliers
Intensity: Low
Overcapacities, poor distribution, low margins Low product differentiation Cheap Chinese supplies.
Bargaining power of Buyers:
Intensity: High
Constantly compare prices and is supported by many outlets like Chroma, E-zone. Rise in disposable income Only product differentiation is the price. Thus increasing the power of buyer. Rising demand of the Consumers.
Recommendations & Conclusion:
Stay focused on consumer needs. Create new markets & tie-ups to increase sales & revenues. Look at acquiring companies that pose threat. Significant alliances in the Asian markets in order to capture these markets. A differentiation strategy to regain their market share undercut by the local
manufacturers in china. Bring about extension to their ‘Global Platform Strategy’ along with extensive R&D in
order to reduce costs immensely in a constrained environment of crisis like we are into now.
Develop a sustenance strategy to recover the loss in sales and revenues alike in the previous few quarters.